Patch Blog: I'm Saying 'No' to the Utility Users Tax... for Now

For the upcoming April 10 election, Sierra Madre voters will weigh in on two Ballot Measures.  Measure 12-1 will authorize an increase to the Utility Users Tax (UUT) from the current ten percent to twelve percent on July 1, 2013 and delay the sunset dates by four years.  Measure 12-2 is a companion “advisory” measure, which is intended to allow voters to advise the council to spend the increase in the UUT on public safety.

As a candidate for Sierra Madre City Council, I want voters to know where I stand - I recommend a NO vote on both measures. Now is NOT the time for voters to authorize the increase and extend the sunset.  Let me make one thing perfectly clear – Voting NO on Measure 12-1 WILL NOT reduce the current UUT revenue stream, and it WILL NOT jeopardize Public Safety in any way!

I’m against Measure 12-1 for three reasons.  First, the existing UUT ordinance that was enacted via Measure U in 2008 resulted in a revenue windfall for the city.  Sierra Madre received far more revenue from the UUT than was forecast.  The revenue windfall became apparent in the first year of the UUT increase.  According to the January 26, 2010 staff report on Fiscal Year (FY) 2008-2009 UUT revenue, the original revenue budget was for $997,776, the revised budget was $1,567,776, and the unaudited actuals were a whopping $1,820,422!

At the current ten percent UUT rate, the projected revenue will increase from $2,500,000 per year in FY 2010-2011 to $3,038,766 in FY 2014-2015, according to official city budget.  The UUT was 31 percent of the General Fund Revenue in FY 2010-2011, and will represent 34 percent of revenue at the current ten percent rate in FY 2014-2015. The budget is balanced at the current rate, and is projected to be balanced at that rate though FY 2014-2015, which is what one would expect, given the unanticipated revenue windfall.  

Keep in mind a fundamental rule of budgets and expenses – most entities, whether a city government, an individual family, or a department in a large corporation, will spend up to the budget limit – expenses, or so-called “needs”, somehow magically rise to the budget!  Since Sierra Madre’s UUT revenue came in higher than expected, the city’s expenses rose to match it.  Sierra Madre’s citizens have already handed the city one UUT tax revenue windfall.  Don’t give them another.

Second, this is not about Public Safety.  We’ve already taken the big hit on public safety expenses in previous years. Projected growth to public safety expenses is manageable.  Police and Fire expenses are projected to grow only $152,543 annually from FY 2010-2011 to FY 2014-2015, compared to growth of $538,766 annually in UUT revenue over the same period.  If you include the Paramedic revenue-to-expense shortfall, that would add $112,887 to the annual expense for a total of $256,653, which is still considerably less than the projected UUT revenue growth.

As a side note, this invalidates the argument for Measure 12-2.  Why would we need an "advisory" measure to tell the council to spend the additional revenue on public safety when the projected growth in public safety expense is less than the expected growth in UUT revenue?

Third, the existing (and growing) UUT revenue stream is in no danger of diminishing in the near future.  The current ten percent rate will not sunset to eight percent until June 30, 2015.  Rest assured that your City Council will tee this up again on the 2014 election, in plenty of time to avoid the sunset.

So why was this increase put on the ballot now?  There are three possible reasons.  First, the windstorm damage caused a significant hit to expense.  The city will dip into reserves to pay for damage and cleanup, which is appropriate.  That’s what reserves are for. 

There’s an analogy here to which everyone can relate.  Most Sierra Madre homeowners took a hit to their personal finances because of the windstorm. Of course, some were impacted more than others.  Regardless, even if you had an insurance claim, you still had out of pocket expenses for your deductible, and you probably had other expenses.  How did you make up for the unanticipated expense?  Did you demand a raise from your employer?  I doubt it.  You probably tightened your belt a bit, or you dipped into savings (reserves), or a combination of both.  I believe it is appropriate for our City Government do the same for now.  It is not necessary nor is it appropriate to run to the public asking for a tax increase, especially since the city council has it within their power to raise the tax to twelve percent within the current ordinance if they feel it is necessary to do so.

Second, we’re faced with the dissolution and associated unwinding of the Community Redevelopment Agency (CRA).  CRAs ceased to exist in California on February 1.  We’re allowed to continue to receive tax increment dollars to fund what’s on the Enforceable Obligation Payment Schedule.  Other CRA tax-increment funded work must stop immediately.  If we choose to continue, it must be paid out of General Funds.  So basically the city needs to stop paying for work that isn’t being done any more.

For now, the City Council authorized $250,000 from reserves to allow staff time to figure out how to unwind the CRA tax-increment dollars from the budget.  From a practical governance point of view, I think that both the Council and staff should have seen this one coming and started the process months ago.   The voters should not authorize a tax increase to pay for work or services that no longer are appropriate.

Third, could this be a political move?  The current tax is authorized at twelve percent.  The City Council voted to maintain the tax at ten percent, and it can vote to increase to twelve, in which case it wouldn’t revert back to ten percent until June 30, 2014.  Could it be that a Council vote to increase the tax is politically unpalatable? Perhaps it was a bit easier to just go ahead and punt to the voters, especially when you consider the misleading companion Measure 12-2, which suggests that the tax increase is to be used for Public Safety. 

Consider also that an increase to twelve percent would place Sierra Madre in that rarefied air of distinction – we would be the ONLY municipality in the State of California with a twelve percent UUT!

To conclude, there is absolutely no reason to vote in a tax increase now.  The current ten percent tax rate will not sunset until 2015.  The council can vote to increase the tax to twelve percent under the current ordinance without a ballot measure.  If they raise it to twelve percent rate, it would not revert back to ten percent under the sunset clause until June 30, 2014.  Voters can weigh in on extending the sunset clause and possibly increasing the tax in the April 2014 election, AFTER careful deliberation, consideration of economic conditions that have yet to play out, and more public input on how the tax should be structured.   

Don’t institutionalize higher tax rates by extending the sunset four years.  Now is your chance to send an unmistakable message to your city council that tax increases are not to be taken lightly, that you expect fiscal discipline, and that you want a rigorous public debate before authorizing increased taxes!